January 5, 2019
On a rainy evening in 2011, stockbroker and insurance agent Jeffrey A. Schumaker was driving when two young girls ran out in front of his car, and he could not avoid hitting and injuring one of them. Schumaker was sued over the accident and he incurred legal defense costs. After the accident, Schumaker experienced a medical issue and needed to write a substantial check to pay his medical bills -- unfortunately, he had anticipated a substantial commission check would cover his payment. As you may have anticipated, the commission check didn't materialize. Faced with an overdrawn checking account, Schumaker took $8,300 in funds from the homeowner's association where he served as Treasurer. His intent was to repay the funds. In 2014, when the homeowners' association had bills coming due and needed funds, he made a deposit into the association's account of $9,000, which included the $8,300 unauthorized withdrawal and his own dues. Thereafter, Schumaker disclosed to the association his $8,300 misappropriation and how he had repaid it; and then he resigned as Treasurer. Such, then, is the stuff of the prologue for today's blog.
Many things are countable and transferable, and could be tokenized. But that doesn't mean they should be. There have to be reasons to adopt new ways to do things. What critical need can a blockchain application satisfy better than any other alternative? What real problem can a blockchain application solve that an existing technology can't? Good ideas for use cases are a dime a dozen. A blockchain application that protects us from contaminated lettuce is a game-changer. But to pay for that lettuce with bitcoin instead of dollars is just an affectation.
In my private law practice, I frequently receive telephone calls from registered representatives who have an Employee Forgivable Loan (also known as a "Promissory Note" or "EFL") and are contemplating quitting or anticipate being fired from the employer broker-dealer. Inevitably, our conversation involves some discussion as to the "unaccrued balance" remaining on the EFL -- which prompts the client to ask if I can negotiate some discount off any repayment. In some cases, the client volunteers that there's no way in hell that he can come up with the bucks needed to repay anything (often including my legal fees). In other cases, we got "mitigating circumstances" involving discrimination, harassment, wrongful discharge, hostile workplace, racism, sexism, ageism, which might entitle the rep to keep every penny of any unaccrued EFL balance and perhaps demand damages to boot. In such EFL discussion, I inevitably admonish my potential client with a quote from George Bernard Shaw: "There are two tragedies in life. One is to lose your heart's desire. The other is to gain it." Point being that the rep might refuse to repay the unaccrued balance, get sued by his former broker-dealer, get slammed by a FINRA Arbitration Panel with compensatory damages, interest, costs, and fees. That would be the "loss." As to Shaw's referenced "gain," that would be the rep winning a smashing victory, not have to repay any of the unaccrued EFL balance, but then winding up with the now-forgiven loan balance converted to income, which then gets taxed, which then requires payments to local, state, and federal taxing authorities. If you don't have the money to repay a broker-dealer, imagine what it will be like pleading poverty to a state or federal tax authority. With that preamble, let's embark upon a fascinating journey of one rep's apparent victory in an EFL battle with Merrill Lynch.